The reason RARE remade Diddy Kong Racing for the NintendoDS is because it would earn them cash, in the same way that Microsoft are allowing them to mak a Viva Pinata title for the NintendoDS and THQ do an Age of Empires title a couple of years ago. GoldenEye 007 is in-development for Wii’s Virtual Console, but also for XboxLIVE! Arcade as, and this is where it gets complicated, Activions now own the rights to the Bond licence, Nintendo own the rights to the game and RARE claim royalties for the design. So, an agreement has had to have been reached between Nintendo, Activision, RARE and Microsoft for work to go ahead. Rumour is that it’s actually been finished for a while, and there’s just the legal jargon to get through.
On the fact of Killer Instinct? I’m sorry, but I can’t see it happening. Microsoft simply won’t view it as a valuable enough IP to have RARE working on. Another rumour here is that RARE had all but finished an ealry GameCube prototype when the original selling and buying of the developer on behalf of Nintendo and Microsoft occured.